Looking ahead from Copenhagen: How challenging is the Chinese carbon intensity target?

Carlo Carraro, Massimo Tavoni, 5 January 2010

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At COP15 in Copenhagen, China announced that its carbon emissions per unit of GDP would be reduced in 2020 by 40% to 45% with respect to 2005 levels (this commitment is in the Annex to the so-called Copenhagen Accords). This marks a point of departure from its long-standing reference to the UNFCCC principle of “common but differentiated responsibilities”, which requires Annex 1 countries to take on the initial responsibility in reducing carbon emissions.

Copenhagen outcome for China

China’s appeal to the historical responsibility of developed countries and their higher per capita emissions remains a very valid point, but China’s undisputed role as the largest emitter in the world – with 25% more emissions than the US, the second-largest emitter – cannot go unnoticed. Before and during COP15, many countries pressed China to act to control their very rapid emission growth.

China has resisted demands from American and European negotiators to adopt binding limits on its emissions. Environmental concerns, it argued, must be balanced against economic growth. Moreover, developed countries must first demonstrate a significant commitment to reducing their own emissions. Nevertheless, China’s 40% to 45% proposal can be considered an important political statement. Assessment of its implications in terms of emissions reductions, however, has generated less consensus. The problem is how to convert the somewhat elusive metric of carbon intensity into the conventional quota targets.

Estimates of extra effort needed to meet the Chinese target

Economic and emissions projections can provide some intuition of how demanding is the intensity proposal. According to the Energy Information Agency of the US Department of Energy (EIA-IEO09), in 2020 China will have an economy of $16.9 trillion (measured in 2005 PPP dollars) and energy-related emissions equal to 9.4 GtCO2, and thus a carbon intensity of 0.56 tCO2 per thousand dollars of GDP. As its intensity in 2005 was just above 1.0, China seems able to achieve the 45% reduction target under the UN’s so-called “business–as-usual” scenario, i.e. without any additional effort.

Another well-known energy outlook, provided by the International Energy Agency (IEA-WEO09), foresees a very similar carbon-intensity figure (0.55), reinforcing the argument that the Chinese proposal would not entail measures beyond those considered as baseline. Thus, China only commits to do business as usual.

However, this interpretation is at odds with declarations that suggest that significant action will be required to achieve a decarbonisation of the economy of this sort, released for example by the same IEA (Nature 2009).1 Chinese commentators have suggested that the objective will require significant investments and increased taxes on energy or emissions (China Daily 2009). Yet, looking at Chinese forecasts doesn’t provide a different picture from that of foreign agencies. In the report that forecasts energy and emissions to 2050, produced by China’s Energy Resource Institute, the carbon intensity in the baseline is expected to fall some 40%-45%. Indeed, in contrast to assessments for other countries such as India, the main sources of projections seem to agree on similar growths in emission (3% per year) and in the economy (8% per year), which yield the rate of decarbonisation set forth in the Chinese proposal in Copenhagen.

It should be noted that business-as-usual scenarios incorporate significant investments in low-carbon technologies. For example, according to the IEA, 114 GW of wind and nuclear will be in place in 2020, compared to today’s 14. China has also committed to a significant energy-efficiency improvement before 2010. Yet, coal is expected to continue to dominate the energy mix, with an astonishing 2020 installed capacity of almost 1000GW, twice as much as today. It thus remains unclear whether the proposed climate policy will achieve more than the already demanding “natural” evolution of baseline.

Historical evolution of Chinese intensity

History provides some (partial) guidance for the future. In the 15 years preceding 2005, China’s carbon intensity decreased by roughly 44%, the same number forecast for 2020, either as baseline or policy. Yet, significant variations occurred over time.

Figure 1 plots the historical carbon intensities of China, South Korea, and Taiwan. China achieved a remarkable drop from its initially extremely high carbon intensity but then experienced a sudden reverse of this trend in the early 2000s that has ceased only after 2004. Though this well known fact can be imputed to a swift reallocation of the economic activity towards energy-intensive sectors such as cement and aluminium and to potential misreporting of emission inventories around the turn of the century, it also serves as a reminder that steady intensity improvements should not be taken for granted.

Figure 1. Carbon intensity versus per capita GDP (log scales). Historical data for China (1988-2008), South Korea (1980-2005) and Taiwan (1975-2006), and projections to 2020 from EIA IEO09, IEA WEO09 and ERI

Note: The two horizontal lines indicate the carbon intensity reduction target of 40%-45% with respect to 2005. Sources: World Development Indicators, CDIAC, Penn World Table

Indeed, looking at a sufficiently large panel of countries doesn’t provide an unequivocal relation between economic development and carbon intensity.2 Carbon-efficiency gains are observed in many circumstances, but in widely varying relation to the economy.

Figure 1 provides some evidence for two neighbouring countries. Both Taiwan and Korea started from lower levels of intensity than China for similar level of income, potentially because both countries rely almost exclusively on imported energy and do not have significant coal resources. Over time, both managed to improve their intensity, though at rates lower than the historical (and projected) path for China. Other coal-rich countries in transition through similar levels of intensity or wellbeing provide different evidence. Poland managed to decrease its intensity roughly one to one with its economy. South Africa didn’t make any meaningful efficiency gain.

Therefore, the historical evidence provide us with only limited confidence to believe that naturally, as China’s economy develops from the roughly $5000 per capita of today to the $11500 per capita in 2020, the carbon intensity will be driven down by a growing role of the service sector and technology. The projections reported in Figure 1 that indicate a baseline linearly approaching the climate target might well be correct, but it also plausible that deviations from the historical rates of decarbonisation would result in a much more demanding job.

Some regression analysis

By regressing (log) carbon intensity on (log) per capita GDP, we can estimate the income elasticity of carbon intensity for different countries and time spans. Looking at the past 20 years (1988-2008), China’s elasticity is about -0.5, meaning that every 1% of increase in per capita income has been accompanied by 0.5% decrease in carbon intensity. This value is also true for Taiwan, for the $5000-$11,500 per capita income range China is expected to occupy between now and 2020. Projecting the future using this value would result – as noted above – in a carbon-intensity reduction in line with the climate proposal, about 41% with respect to 2005. Indeed, despite using a much richer modelling approach, this is what international and national scenarios are projecting.

Using lower elasticities would alter the picture. For example, since 2004 (and according to provisional emission estimates to 2008) China’s carbon elasticity has been around -0.3. Estimates for South Korea – for a similar range of per capita income – yield a value of -0.25.

In Table 1, we show what would happen if China follows such rates of decarbonisation. The carbon intensity reductions for these two lower values would be lessened, consequently, to 27% and 23% respectively. Such lower rates would result in higher emissions or, equivalently, a need for greater emission reduction to meet the climate proposal of 40%-45%. Table 1 also shows that an elasticity value of -0.3 would result in a mitigation effort of -26%, and that would exceed -33% for the lower case.

Table 1. Implications of different elasticities on carbon intensity and emissions in China in 2020

Income elasticity of carbon intensity Carbon intensity reduction from 2005 level Emissions (GtCO2) Emission reductions needed for
-42.5% objective
-0.5 41% 9.4 2%
-0.3 27% 11.6 26%
-0.25 23% 12.3 33%

Conclusion

These results indicate that assessing the challenge of the carbon intensity target proposed by China is not an easy task. If China were to continue on its long-term historical trend, then the 40%–45% objective would essentially yield nothing more than the baseline. No additional effort. No leadership to fight climate change. The Copenhagen Accords would be even emptier than what is now perceived. This is what energy scenarios seem to predict to be the most likely case. Yet, the significant variations over time and across countries suggest that the proposal could turn into a serious mitigation policy, and possibly a very challenging task, even for somewhat lower rates of decarbonisation of the Chinese economy.

Footnotes

1 The IEA Chief Economist, Fatih Birol, told Nature that “if the target is met, it would have significant implications for China and the rest of the world.”

2 Similar suggestions hold for economic development and per capita emissions, a topic widely analysed in the so called environmental Kuznets curve literature.

References

China Daily (2009) “Emissions goal 'will cost China $30b'”.

Energy Information Agency (2009) “International Energy Outlook 2009”.

Energy Research Institute (2009) “2050 China Energy and C02 Emissions”.

International Energy Agency (2009) “World Energy Outlook 2009”.

Nature (2009), “China’s climate target: is it achievable?”, Volume 462|3 December 2009.

Topics: Environment
Tags: Carbon policy, China, Copenhagen Summit

Professor of Environmental Economics and Econometrics, University of Venice and CEPR Research Fellow
Director, Climate Change Economics unit at Euro-Mediterranean Center for Climate Change

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